Bergeron v. Ridgewood Securities Corp.

• Decision Date: 31 March 2009
• Docket Number: Civil Action No. 06-10321 RGS.
• Parties: Paul BERGERON, Individually and on behalf of the P. Bergeron Nominee Trust v. RIDGEWOOD SECURITIES CORP., et al.
• Court: U.S. District Court — District of Massachusetts

Page 113

610 F.Supp.2d 113

Paul BERGERON, Individually and on behalf of the P. Bergeron Nominee Trust v. RIDGEWOOD SECURITIES CORP., et al.

Civil Action No. 06-10321 RGS.

United States District Court, D. Massachusetts.

March 31, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

William C. Nystrom, Robert S. Messinger, Nystrom Beckman & Paris LLP, Boston, MA, for Paul Bergeron.

Robert B. Luce, Downs, Rachlin & Martin PLLC, Walter E. Judge, Jr., Downs, Rachlin & Martin, Burlington, VT, Steven L. Manchel, Manchel & Brennan, LLP, Needham, MA, for Ridgewood Securities Corp., et al.

MEMORANDUM AND ORDER ON THE REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE

STEARNS, District Judge.

After careful consideration of defendants' eight vigorously articulated Objections to Magistrate Judge Dein's Report and Recommendation, I will ADOPT her Report and Recommendations with one small caveat. A few comments are in order. Although one might think otherwise from a reading of the thirty-five pages of the Objections, the Report is nuanced, objective, and balanced. The Magistrate Judge recommends the allowance of defendants' motion for summary judgment on a number of plaintiff's claims, including the claims of breach of fiduciary duty (usurpation of corporate opportunities), and all breach of contract claims other than those related to the (allegedly) promised IPO. Where differences exist between defendants and the Magistrate Judge, they focus principally on two issues: (1) defendants' objection to evidence that the Magistrate Judge credited that they find unbelievable, uncorroborated, or unreliable, see, e.g., Objections, at 11-12; and (2) her refusal to treat certain claims of reliance on the part of plaintiff as unreasonable as a matter of law, see, e.g., id. at 16. With respect to the first issue, defendants make strong arguments about the quality and force of much of the evidence, but do not give sufficient recognition to the Magistrate Judge's scrupulous deference to a summary judgment standard that requires her to give plaintiff, as the non-moving party, the benefit of every contested (and uncontested) factual inference. See Oliver v. Digital Equip. Corp., 846 F.2d 103, 105 (1 st Cir.1988). As to the second area, the issue is not that the Magistrate Judge did not recognize that in very limited circumstances reliance can be unreasonable as a matter of law, see Report, at 57-58¹; rather she found that the facts—again viewed in the light most favorable to plaintiff—take this case out of the exception and commit it to a resolution by the jury.² Finally, the suggestion that the Magistrate Judge failed to recognize the evidentiary consequences of the various integration agreements is simply not borne out by the Report, see, e.g., id. at 44.³

ORDER

For the reasons stated by the Magistrate Judge in her Report, defendants' Motion for Summary Judgment is DENIED as to Counts I, V, VI, and VII⁴; ALLOWED as to Count II; and ALLOWED in part and DENIED in part as to Counts III and IV. The Clerk will assign a date for trial of the remaining claims. Counsel will, within ten (10) days of the date of this Order, submit a joint estimate of the number of days anticipated for trial of the case, consistent with a daily jury sitting of 9:00 a.m. to 1:00 p.m.

SO ORDERED.

REPORT AND RECOMMENDATION ON DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

DEIN, United States Magistrate Judge.

I. INTRODUCTION

The plaintiff, Paul Bergeron ("Bergeron"), has brought this action on behalf of himself and the P. Bergeron Nominee Trust against Ridgewood Securities Corp., its affiliated entities and three of its officers (collectively, the "Defendants" or "Ridgewood"), claiming that the Defendants made material misrepresentations and omissions in order to induce Bergeron to invest in five separate private equity funds created and marketed by the Defendants, and that they breached certain contractual obligations and fiduciary duties owed to investors of their funds. The individual Defendants include Robert E. Swanson, the ultimate owner of the Ridgewood companies, Robert L. Gold, an officer of Defendant Ridgewood Capital Management, LLC, and Randall D. Holmes, an officer of Defendant Ridgewood Renewable Power LLC. By his Second Amended Complaint, Bergeron has asserted claims against the Defendants for violation of the Massachusetts Uniform Securities Act, Mass. Gen. Laws ch. 110A, § 410 (Count I), breach of fiduciary duty (Count II), breach of contract (Count III), breach of the implied covenant of good faith and fair dealing (Count IV), fraud and deceit (Count V), negligent misrepresentation (Count VI) and unfair and deceptive trade practices under Mass. Gen. Laws ch. 93A (Count VII).

The investments giving rise to this litigation were made in two general categories of Ridgewood funds. The first category of funds, known as the "Power Funds," offered accredited investors an opportunity to invest in the independent power and renewable energy sector. Bergeron initially invested in Ridgewood's Power Trust V Fund on January 23, 1998, and on December 31, 1998, he invested in Ridgewood's Power Growth Fund. The second category of funds, known as the "Venture Funds," consisted of a series of venture capital funds that invested in private technology companies. Bergeron purchased shares in three of Ridgewood's Venture Funds during the time period between April 26, 1999 and January 7, 2002.

Bergeron claims that the Defendants fraudulently induced him to invest in these funds by representing that Ridgewood was planning a $500 million initial public offering ("IPO") of its power generating assets when they knew that there were no concrete plans for achieving an IPO and that no feasibility analysis had ever been conducted, and by falsely promising Bergeron a guaranteed 4% return on his investment leading up to the IPO. He further claims that the Defendants breached their fiduciary and/or contractual obligations under the Venture Fund offering documents by investing in early stage companies, and by shifting investment opportunities away from existing funds and into newly created funds. Bergeron asserts that he has lost $900,000 as a result of the Defendants' conduct.

The Defendants deny Bergeron's claims, and contend that the plaintiff was a sophisticated investor who deliberately sought out and invested in high risk products in the hopes of achieving high returns. They assert that Bergeron's financial loss is unrelated to any misconduct on their part, but instead is attributable to significant adverse developments in the independent power business, and to the crash of the high-tech and dot.com markets, which decimated the companies acquired through the Ridgewood funds.

This matter is presently before the court on the "Defendants' Motion for Summary Judgment" (Docket No. 79) by which the Defendants are seeking summary judgment on all of Bergeron's claims. For all the reasons detailed below, this court recommends to the District Judge to whom this case is assigned that the motion for summary judgment be ALLOWED IN PART and DENIED IN PART. Specifically, this court recommends that the motion be DENIED as to Count I; ALLOWED as to Count II; DENIED as to the claims relating to the IPO in Counts III and IV, but otherwise ALLOWED as to Counts III and IV; and DENIED as to Counts V, VI and VII of the Second Amended Complaint.

II. STATEMENT OF FACTS⁵

The following facts are undisputed unless otherwise indicated.⁶

The Parties

Plaintiff Paul Bergeron is an individual who resides in Wellesley, Massachusetts. (2d Am.Compl. ("Compl.") (Docket No. 78) ¶ 1). He is the trustee and beneficiary of the P. Bergeron Nominee Trust. (Id.). Bergeron holds a college degree in economics, and has served as the President of several companies, including Wang Canada, Interbace Software and Charter Systems. (DF ¶ 10, PR ¶ 10). Prior to his introduction to Ridgewood, Bergeron had substantial experience as an investor, and had managed his own buying and selling of stock. (DF ¶¶ 14, 19). In particular, Bergeron had previously invested in both high-tech stocks and non-stock market products. (Id. ¶ 14).

The Ridgewood family of companies has been offering private equity investment opportunities to high net worth individuals since 1982. (DF ¶ 1). It consists of three core business programs, including oil and gas investments, renewable electric power investments and venture capital investments. (Id.). Defendant Ridgewood Renewable Power LLC ("Ridgewood Power"), the successor in interest to defendant Ridgewood Power Corporation, manages business trusts that own and operate renewable electric power and infrastructure projects. (DF ¶ 2). It has raised over $350 million, which has been invested in projects located in various states and overseas. (Id.). Between 1997 and 2001, Ridgewood Power organized and managed a series of private equity Power Funds that offered accredited investors an opportunity to invest directly in businesses operating in the independent power and renewable power sectors. (PF ¶ 2; DF ¶ 4). Certain of Bergeron's claims in this case arise out of his investments in two of those Funds, including the Ridgewood Electric Power Trust V ("Power Trust V") and the Ridgewood Power Growth Fund ("Power Growth Fund").

Defendant Ridgewood Capital Management, LLC ("Ridgewood Capital") manages private equity venture capital funds that invest in a diverse portfolio of private technology companies. (DF ¶ 3). Between 1997 and 2001, Ridgewood Capital managed the Ridgewood Capital Venture Partners LLC Funds I, I-B and II. (Id. ¶ 4). Bergeron has asserted contractual and fiduciary claims arising from his investments in each of these Venture Funds. During the relevant time period, defendant Ridgewood Securities Corporation served as the placement agent for the Power and Venture Funds. (Id. ¶ 6; PR ¶ 6).

Defendant Robert E. Swanson ("Swanson") was responsible for the formation of Ridgewood Power, and is...